An unfair tax on ownership

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Mark Pawsey MP writes about the consequences of abolishing empty property rate relief and the cost to small businesses ahead of his Westminster Hall debate on business rates and vacant commercial properties.

The objective of The Rating (Empty Properties) Act 2007 was to raise over £1bn for the Treasury over the next 12 months as The Labour government looked to increase income at a time of massively over-extended government spending.

However there is evidence to show that the costs in doing so have had a number of negative consequences, some of which were forseen by the property industry and others which have become evident of the past couple of years. There has been additional income for the government but at what cost?

At what cost to the entrepreneurial local business man who found himself in difficult times as the economic situation worsened? Or the small private investor who looked to property as a sound investment, and can accept the ebbs and flows of speculation, but has been burdened with a 'second mortgage' when receiving no income from his investment and also no services for his extra taxation payments? What about the regeneration plans shelved in disadvantaged areas and the older properties demolished to avoid paying empty rates when they may have been let at moderate rent prices to encourage business start-ups?

In difficult economic times we must stimulate growth. This Act has effectively become a tax on ownership and as such is unfair. At the time of its introduction the property market, and the economy as a whole, needed a helping hand. If it was hoped that the Act would force landlords to accept lower rents and thus stimulate small business growth then the results have been opposite to that aim.

In this respect a 2009 RICS report suggests this objective has failed with many property owners choosing to offer rent free periods as incentives rather than lowering rates. Also the same report found that there had been a negative impact on capital values since empty property rates dissuaded investors from entering the market and the consequence of this has been a fall in the levels of investment in this sector.

It was hoped that the application of empty business rates would encourage property owners to accept lower rents to keep their buildings occupied which in turn would support business and the economy generally.

I believe there is a parallel between the position currently being taken by opposition parties who say in respect of welfare reforms that there is no point in trying to force people to take jobs when there are no jobs to be taken. Similarly I believe that there is no point in trying to force landlords to let commercial property cheaply if there are no occupiers to take up the space.

One way in which property owners can avoid their liability to empty property rates is to demolish a building and the RICS survey shows that this is currently the strongest single factor in determining which buildings are demolished. These are often older, less attractive, properties which in times of recession are more difficult to find a tenant for but which in most cases are perfectly sound, usable, buildings. A consequence is that much of this low-cost industrial accommodation will no longer be available at the very time the country is coming out of recession and the start-up businesses, which will be so important to our future prosperity, will not easily be able to find premises to operate from.

It is fully accepted by the business community that the coalition government needs to take decisive action to deal with the country's deficit. However I believe that the consequences of the abolition of empty property rate relief on a large proportion of the country's commercial property estate means that this is an area which should currently be given special attention.

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